Own production, no significant presence of global vehicle manufacturers

Supplier base available, but few global players

Rather large population

Purchasing power

No distinctive export activities

Import activities

No premium car production

Volume car production

People with engineering background

Availability of personnel is limited

Looking for EU membership

No euro adoption

Bordering Russia, Poland, Slovakia and Hungary

Import barriers

Russia is most important trade partner

Severe impact of the economic downturn on light vehicles (-73.5% sales/ -84.8% production in 2009)

Note: Distinctive features of the country are marked in yellow

In contrast to other CEE auto countries, most vehicles produced in Ukraine – which is the third-largest auto market in CEE after Russia and Turkey in terms of population – are intended for domestic sales.

For decades, Ukraine has had an automotive industry of its own, though recently its auto companies have worked predominantly as contract manufacturers for foreign carmakers.

Foreign investment and domestic sales

As the country does not have any significant global manufacturers of its own, the Government hopes that the stabilization of the economical and political situation could drive foreign investment. In contrast to other CEE automotive countries, most vehicles produced in Ukraine, which is the third-largest automotive market in CEE after Russia and Turkey in terms of population, are intended for domestic sales.

ZAZ, a closed joint stock company, is Ukraine’s largest car producer and the market leader. The company, founded in 1863 as a producer of agricultural machines, began producing cars under its own label in the 1960s. After the collapse of the Soviet Union, the company entered a joint venture with Daewoo.

However, the Korean automotive manufacturer went bankrupt in 2000, and since then, ZAZ has predominantly manufactured a variety of foreign brands under license; its major agreement involves producing Chevrolets for GM. Since 2002, ZAZ has been controlled by UkrAVTO, which is involved in many facets of the automotive business.

Overall, the supplier base counts more than 450 players, approximately 50 of which are of foreign origin. Most of the components produced in Ukraine by international suppliers are exported.

Figure 47: Sales and production development (in units) compared between 2008 and 2012

Market demand

With a population of over 45 million, one of the lowest car ownership densities and an obsolete vehicle population, Ukraine’s automotive market has grown continuously since 2003. In 2008, light vehicle sales grew by 15% and reached 623,252 new vehicle sales. During 2009, domestic light vehicle demand dropped by over 70%.

Russian AvtoVAZ Lada kept its dominant market share, ahead of Daewoo and Hyundai. Foreign brands reached a leading position in 2008, with cheap new cars enjoying increasing popularity. Used car sales, which had stagnated, revived during the credit crunch.

Upon joining the WTO in 2008, Ukraine cut vehicle import duties and removed import restrictions on vehicles more than eight years old. However, due to the economic crisis, the customs duty for import cars was raised in February 2009 to 23% again.

Automotive player

In 2009, light vehicle production in Ukraine fell by more than three-quarters to 84,192 units from 413,938 units in 2008. The major passenger car producer ZAZ, located in Zaporizhe, is the only company that offers complete car manufacturing operations. Under license, the company assembles cars from the Chevrolet, Chery, Lada, Opel and, as of recently, Kia brands.

UkrAVTO also cooperates with Mercedes- Benz and Toyota in car distribution. About 20 companies have been established under Bogdan Corporation, which was founded in 2005 to expand Ukraine’s engagement in the automotive sector. At LuAZ, Hyundai and Lada vehicles are assembled under license, whereas trucks are manufactured under the license of Isuzu at OJSC Cherkasy Bus and Hyundai vehicles at Hyundai Motors Ukraine.

Eurocar produces vehicles only for VW. The company, located in Zakarpattya, was established in 2002 and is mainly used for the assembly of Škoda vehicles. AvtoKrAZ Holding Company, a former Ukrainian-Russian joint venture founded in 1995 in Kremenchug produces of heavy-duty vehicles, and the Lviv Bus.

In the downturn

The global crisis had a severe impact on Ukraine. Demand and prices for ferrous metals — the main export commodity of Ukraine — collapsed. The resulting drop in consumer confidence caused the Ukrainian automotive market to shrink by over 73% in 2009, the worst performance of any CEE country — this after Ukraine had been one of the fastest-growing markets in recent years. As the majority of local production is intended for domestic market, the output plummeted by over 84% during 2009.

Despite the slump, the Government has not implemented any scrappage programs.

There do exist governmental efforts to support car dealers in case they trade in scrap cars in payment from end consumers, but it has not been implemented. The dramatic production cuts are predominantly a result of the very weak domestic market. UkrAVTO wants to push exports with a rebranded version of the Chevrolet Lanos, named “Chance,” intended for countries such as Russia, Moldova and Kazakhstan.

The car company also has decided to add Kia vehicles to its production portfolio and will take over the distribution, as it owns the largest sales network in the country.The KrAZ unit in Kremenschug plans to establish another factory for the production of small and compact cars with an annual capacity of 250,000 units. Who its cooperation partner will be is not yet clear.

Leoni AG (Leoni), the global supplier of cable systems, and VW established a joint venture for the manufacturing of wiring systems for automotive powertrains in Striy. Leoni has a presence in Ukraine since 2002 and lately decided to relocate part of its production capacities from Poland to Ukraine.

In contrast, Bogdan Corporation has frozen the construction of its Russian bus plant as car sales in Russia have fallen significantly during 2009.

Risks and opportunities

Risks

The absence of political and economic stability

High inflation, which is the result of the current negative account balance, leads to a decrease in industrial production and slow economic growth.

Uncertainty in energy policy and constant Government representations about the possibility of moving away from Russia as Ukraine’s main energy supplier make the task of energy cost prediction more difficult.

Shortcomings in social policy in previous years could cause the state to divert budget resources intended for infrastructure development or fulfillment of investor commitments.

Opportunities

The second-largest economy and car market in the CIS

According to Ukraine Autos Report Q1 2009, the ongoing untapped growth potential due to low rates of car ownership should reach 1 million vehicles by 2013.

Bridge to Russia

Another competitive advantage is its closeness to Russia, which is Ukraine’s most important foreign trade partner, accounting for more than 22% of the total volume of Ukrainian foreign trade.

The bilateral agreement on free trade between Ukraine and Russia allows lower, even zero, import rates.

Investment incentives and low wage level

In 2006, the Government released the Concept for Developing the Ukrainian Automobile Industry and Regulating the Automotive Market Until 2015. It is believed that this will stimulate FDI in the industry.

Some international parts makes have settled in Ukraine to benefit from labor costs that are 10 times less than WE levels and better than in Poland, Slovakia, Hungary or Romania.

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